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Midland Oil has $1,000 par value bonds outstanding at 16 percent interest. The bonds will mature...

Midland Oil has $1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in 20 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
   
Compute the current price of the bonds if the present yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)

Midland Oil has $1,000 par value bonds outstanding at 16 percent interest. The bonds will mature in 20 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
   
Compute the current price of the bonds if the present yield to maturity is: (Do not round intermediate calculations. Round your final answers to 2 decimal places. Assume interest payments are annual.)

A. 12% = ?Bond Price

B. 9% = ?

C. 15% = ?

Solutions

Expert Solution

Par Value of Bond = $1000

Annual Coupon Payment = $1000*16%

= $160

No of years to maturity(n) = 20 years

a). If present yield to maturity(YTM) is 12%

Calculating the Current Price of Bond:-

Price = $1195.104 + $103.667

Price = $1298.77

So, Current Price of Bond when YTM is 12% is $1298.77

b). If present yield to maturity(YTM) is 9%

Calculating the Current Price of Bond:-

Price = $1460.56 + $178.43

Price = $1638.99

So, Current Price of Bond when YTM is 9% is $1638.99

a). If present yield to maturity(YTM) is 15%

Calculating the Current Price of Bond:-

Price = $1001.488 + $61.100

Price = $1062.59

So, Current Price of Bond when YTM is 15% is $1062.59

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jeff jeffy answered 1 year ago
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